If you’re thinking about buying a house this year, now might be the perfect time. I’ve been keeping an eye on the housing market, and it seems like 2024 is shaping up to be a great year for buyers.
Last year, I predicted that the national median home price would drop by about 8% by the summer, and guess what? I was right on the money. A few factors contributed to this, including higher mortgage rates, a bear market in the S&P 500 and NASDAQ in 2022, and the potential for a recession.
So, what does this mean for you? Well, it means that home prices have been on a bit of a downward trend. For example, the median U.S. home sale price fell 3.3% in March to $400,528, the largest year-over-year drop since 2012. This followed a 1.2% dip in February, which was the first annual decrease since 2012.
This slowdown in housing price appreciation was bound to happen, given how rapidly home prices rose in 2020, 2021, and the first quarter of 2022. A more typical annual housing appreciation rate is around 4%-5%.
Now, let’s talk about new and existing home prices. According to the latest data from the St. Louis Fed, the median sales price of new houses sold dropped to $420,800 in April 2023 from $496,800 in October 2022. That’s a significant 15% decline.
As for existing homes, the National Association of Realtors reported that as of June 2023, the median price of existing home sales was $396,100, down 4.3% for the year. So, prices for both new and existing homes have been on the decline, which is why 2023 and 2024 are looking like great years to buy.
But what about home prices by state? Well, based on the Zillow Home Value Index, home prices have dropped the most out west, but have remained stable or even slightly increased in the east. So, depending on where you live, you might be seeing more deals than others.
Now, let’s talk about the future. Zillow is predicting a roughly 6.5% nationwide rebound in home prices from June 2023 to June 2024. This is because they believe mortgage rates have peaked and will start to decrease, leading to increased demand that will outpace the increased supply of homes.
When it comes to buying a house, whether in a bull or bear market, I always recommend trying to get a discount on the market price. My rule of thumb is to aim for a 10% discount and settle for at least a 5% discount. Remember, the money is made on the purchase, not on the sale.
There are several strategies you can use to get a better deal on a house. For example, you can write a real estate love letter to persuade the seller to accept your offer, or a real estate breakup letter or price concession letter if you don’t get a price discount. If you have cash, you can make a no-financing contingency offer to beat out the competition.
So, if you’re planning to buy a house in 2024, start with a 10% discount mentality from last year’s prices and see what you can find. It’s no different than in 2023, starting with a 10% discount mentality to 2022’s prices and so forth.
In the long run, home prices, like stocks, tend to go up. So, why do I think 2024 is a good year to buy? Well, I give 2024 a 6.5 out of 10 on my buying opportunity conviction scale. This means that while 2024 isn’t a slam-dunk buying opportunity, I do believe that buying now will lead to a positive outcome a year from now, especially if you can get a good discount.
There are a few reasons why I think homebuyers should feel confident about buying a house in 2024. For one, there’s a lot of pent-up demand and growing cash balances. Thanks to a surge in mortgage rates, the housing market has essentially been frozen since October 2022. As sellers and buyers decided to take a wait-and-see approach, this has led to eight months of lower-than-average monthly transactions, which ultimately leads to pent-up demand for housing.
Another reason is that the stock market has rebounded. The S&P 500 has rebounded by ~17% and the NASDAQ has rebounded by ~35% for the first half of the year. As a result, investors are feeling richer, which should lead to a higher propensity to buy real estate.
Finally, it seems like mortgage rates have peaked and the Fed’s rate hikes are coming to an end. This means that homebuyers can have greater confidence that the housing market will see a wave of pent-up home buying demand get unleashed.
Of course, there are always risks to buying a home. These include the risk of another recession, another stock bear market, inflation no longer declining, and risks in commercial office buildings.
In conclusion, I believe there is a favorable risk-reward ratio to buying real estate in 2024. The rebound in real estate prices won’t be as quick as the stock market, but I do believe median home prices will be higher by the end of 2025. There is a structural undersupply of homes in America that is simply getting worse.
So, if you’re thinking about buying a house, now might be the perfect time. Just remember to bargain aggressively and be willing to walk away from a deal. Don’t get emotionally attached to a home because there is ALWAYS another great home around the corner.
If you plan to live in your home for at least five years, preferably ten, I think you’ll do fine. And if you don’t end up making money on your home, that’s OK too. At least you will have had a nice place to live all those years.
So, are you ready to start house hunting?
